Corporate Governance Advisory: Delaware Court Ruling May Impact Charter-Provided Advancement Rights to Officers and Directors


A recent Delaware Chancery Court ruling, Schoon v. Troy Corporation,1 calls into question the manner in which advancement rights are provided to officers and directors of Delaware corporations and compels the examination of the basis, if any, of rights to advancement of legal fees and expenses when a lawsuit is brought against officers and directors for company related matters.

Corporations may advance legal fees and expenses on behalf of officers and directors who are sued for actions taken on the corporation’s behalf. While advancement pursuant to § 145(e) of the Delaware General Corporation Law is discretionary, not mandatory, many corporations include such provisions in their charters as an equitable measure to prevent officers and directors from being forced to pay significant fees in advance of an ultimate indemnity determination. Advancement claims often arise after an officer or director ceases service to the corporation.

One might assume that advancement rights—at least those provided by charter—vest upon an officer or director’s assumption of their corporate duties, but the Delaware Chancery Court reached a contrary conclusion in Schoon.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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